The first witness we have today is the representative of the Proprietary Association, Dr. Howard A. Prentice, executive vice president.

Mr. Prentice.

STATEMENT OF DR. HOWARD A. PRENTICE, EXECUTIVE VICE PRESIDENT, PROPRIETARY ASSOCIATION

Mr. PRENTICE. Mr. Chairman and gentlemen of the committee, I think I will take 30 seconds, with your permission.

I have filed a statement with the clerk, and copies reached members of the committee. It is a one-page statement, and our position simply is that we support this bill, and our statement which we are now filing gives the reasons for that support.

That is all I wish to present to the committee.

I will be glad to answer any questions, since I am here, but I know your time is very precious.

Mr. MACK. Thank you very kindly, Mr. Prentice, and I hope you have established some kind of a precedent for the other witnesses. (The statement referred to is as follows:)

STATEMENT IN SUPPORT OF H. R. 10527 BY THE PROPRIETARY ASSOCIATION, WASHINGTON, D. C., BY DR. HOWARD A. PRENTICE, EXECUTIVE VICE PRESIDENT

The Proprietary Association, a 77-year-old national association of the manufacturers of proprietary medicines, supports H. R. 10527 and urges favorable consideration and passage of this bill.

H. R. 10527 is directed toward establishing a sound legal status for fair trade. This statement reaffirms the support the Proprietary Association has rendered fair trade in the past. Congressional hearing testimony on the Miller-Tydings Act of 1937, and the McGuire Act of 1952 indicate this support.

The Proprietary Association's membership includes the manufacturers of drug products-packaged medicines-which are completely labeled with directions for use and with warnings against misuse, and which are advertised to the public for use in home medication. Such products are known as "proprietary medicines." Proprietary medicines are sold under brand names, many of which are registered in the Trade Mark Division of the Patent Office. They are nationally advertised and in several instances are internationally advertised. A tremendous amount of goodwill has been created for these products, and their trademarks constitute a very valuable asset to their owners.

One of the important objectives of the Proprietary Association is to preserve and improve the integrity and stability of the trademarks which its members own or control and pursuant to and under which they conduct business.

We believe it is essential to the welfare of our industry to have effective, enforcible, fair-trade laws. Therefore, the Proprietary Association asks that Congress enact legislation which will establish fair-trade laws on an equitable and legal basis.

The Proprietary Association endorses H. R. 10527.

Mr. MACK. Our next witness is Mr. Joseph Klamon, of the School of Business Administration of Washington University, St. Louis, Mo. STATEMENT OF JOSEPH M. KLAMON, PROFESSOR OF MARKETING, SCHOOL OF BUSINESS ADMINISTRATION, WASHINGTON UNIVERSITY, ST. LOUIS, MO., ON BEHALF OF CONSUMERS' FEDERATION OF ST. LOUIS AND ST. LOUIS COUNTY

Mr. KLAMON. Mr. Chairman and gentlemen of the committee, I will not take more than 5 or 10 minutes, and I appreciate your kindness in allowing us to offer our testimony in the record.

(Mr. Klamon's prepared statement follows:)

STATEMENT PRESENTED ON BEHALF OF THE CONSUMERS' FEDERATION OF ST. LOUIS AND ST. LOUIS COUNTY BY DR. JOSEPH M. KLAMON, PROFESSOR OF MARKETING, WASHINGTON UNIVERSITY, ST. LOUIS, Mo., IN OPPOSITION TO H. R. 10527

My name is Joseph M. Klamon. I live at 8007 Stanford Avenue, University City, Mo. I appear in opposition to H. R. 10527 on behalf of myself as an individual and on behalf of the Consumers' Federation of St. Louis and St. Louis County, whom I have served as a marketing consultant for many years. I wish to thank the committee for permitting me to speak against this bill which I believe, very strongly, not to be in the public interest. Since Septmeber 1929, almost 29 years ago, I have taught marketing and related business courses at Washington University. I am professor of marketing in the School of Business and Public Administration. Prior to returning to St. Louis I was a tutor at Yale in economics, professor of economics and chairman of the department at William and Mary, instructor in marketing and business policy in the Harvard Graduate School of Business Administration, associate professor of economics at Carnegie Institute of Technology, and visiting lecturer at the University of Pittsburgh. I am a member of the Missouri State Bar and was admitted to the United States District Court Bar in Baltimore, Md., in January 1934. I have the LL. B. degree from the Washington University Law School and the J. D., M. A., and Ph. D. from Yale University. I also held a fellowship in 1926 in the Harvard Law School. For the record I might add a word or two about the Consumers' Federation of St. Louis and St. Louis County. It was originally set up early in 1933 by Prof. Paul Douglas when he was with the NRA and before he became United States Senator from Illinois. This organization has continued to function after the NRA ceased to function. The organization of consumers known as Consumers' Council when originally organized, has often appeared before committees of the State legislature in Jefferson City, Mo., and in Washington, D. C., in opposition to all efforts to impair or destroy State and Federal antitrust laws, and in opposition to all fair-trade laws and other pricefixing devices harmful to consumers and the public generally. We are in favor of price competition on all goods, branded and unbranded, in favor of free and competitive markets, and against granting to any private person or corporation monopoly price-fixing powers over goods bearing the manufacturers' brand, after he has parted with title to such goods.

On page 1, lines 3, 4 and following of H. R. 10527, the following appears: "*** it is the purpose of this act to recognize the legitimate interest of the manufacturer or wholesaler who identified merchandise manufactured or distributed by him in stimulating demand for his identified merchandise through effective distribution to ultimate consumers; to equalize rights in the distribution of identified merchandise by affording the small manufacturer or small wholesale distributor of identified merchandise in free and open competition with articles of the same general class produced by others an opportunity to compete on more nearly equal terms with the large manufacturer or distributor who can afford to control the distribution of his merchandise through his employees and consignees, and by affording the small retailer an opportunity to compete on more equal terms with the large retailer * On page 2 of this bill, sec. tion 2, section 5, and following sections which appear on succeeding pages, there appear provisions that modify our present antitrust laws to the point of virtual destruction. In simple terms this is an attempt by means of H. R. 10527 to enact a Federal price-fixing law. What, if anything, is left of the effectiveness of United States antitrust laws if this bill is enacted? A patent is a legal monopoly granted for a limited number of years as a reward to an originator or creator of a valuable item for his inventiveness. The bill before you would extend the same sanctity and monopoly price-fixing control to a trademark which is merely an identifying brand name. I imagine your committee will want, if it has not already received, the professional appraisal of the merits of this bill from governmental agencies such as the Antitrust Division of the United States Department of Justice, the Federal Trade Commission, the Attorney General, and others in and out of governmental service, who are qualified to give your committee disinterested views of this bill and whether or not it is truly in the public interest.

H. R. 10527 is infinitely worse than the Miller-Tydings Act and the McGuire Act. They permitted States to enact fair-trade laws, and if a State did so, the Federal antitrust laws would then stand aside. As a result of the foregoing laws,

Miller-Tydings and McGuire, 45 States, all except Missouri, Texas, Vermont, and the District of Columbia, had such laws lobbied through their legislatures by interested parties. H. R. 10527 would make possible compulsory uniform price fixing on branded goods by enacting this bill into law. The 16 or more States whose courts have declared invalid the McGuire Act and the 3 States and the District of Columbia that have never had legalized price fixing would now find price fixing forced upon them for the first time by Federal legislation. Advocates of the McGuire Act and similar Federal legislation spoke strongly of the importance of maintaining States rights, local, and State control of important pricing policies on branded goods. After more than a dozen or 16 of the highest courts in that number of States declared the McGuire Act invalid, we have heard no more of the importance of preserving local and State control of pricing policies. In the bill before you the same people now ask for Federal legislation permitting price fixing uniformly throughout the country on branded merchandise moving in interstate commerce regardless of the fact that there would be no public control over such vast private price-fixing powers on branded goods. And no account or consideration given to different marketing costs and varying degrees of efficiency of full-service and limited-service distributors. A distributor operating on a limited-service basis would seem to have a vested property right in his desire to attract customers by permitting his lower operating costs to be reflected in prices to the public, regardless of whether or not the merchandise he has bought and paid for is branded or unbranded. If all a manufacturer or a distributor need do to take his pricing policies out from under the operation of the United States antitrust laws is to identify such merchandise by brand, what a tremendous incentive he will have to multiply branded goods.

It would seem there will be little, if anything, left of the Sherman Act or of the rest of our antitrust laws if H. R. 10527 becomes law. All laws of this nature, State or Federal, have but one object in mind: To freeze or raise and then to maintain prices to consumers; never to lower them. Such price-fixing laws tend to destroy the ability of lower cost dealers or more efficient dealers to pass on to the public at least part of such lower cost, and lower prices to consumers. Consumer Reports in its May 1958 issue on page 282 in an article entitled "Are We Heading for a Federal Price-Fixing Law?" put the matter very succinctly in the following fashion: "The point at issue then is simply this: The brand manufacturer wishes to decide, at his time and in his own way, when, where, and how, his brand shall be priced at the retail counter even though that counter is the property of another firm, and even though the title to his product shall have passed from him to the retailer." The bill before you gives such brand-name manufacturer or anyone else adversely affected a legal cause of action against anyone who sells below a manufacturer's fixed price, although title has left the manufacturer completely. Chief Justice Hughes said in the famous Miles Laboratory case that once a maker has sold his product the public is entitled to all subsequent traffic and competition in that article.

There is an element of irony in this bill. It is offered as an aid to small distributors and perhaps as a sort of antirecession law. However, if enacted it will, in fact, accomplish the precise opposite. Bernard Baruch recently urged price cuts to get us out of the recession quickly. Mr. Baruch urged price flexibility to restore the economic balance between production and consumption and in order to move huge inventories at all levels; to stimulate sales and business through lower prices in order to clear markets of consumer goods. This is an excellent suggestion and an immediate result of moving such inventory through lower prices would be to call laid-off men back to work. This bill, permitting price rigidity and price fixing would certainly cause inventory pileups instead of inventory clearance.

What better evidence do we need that fair-trade price fixing hurts business and is also harmful to the public, instead of helping either, than what recently happened when General Electric dumped fair-trade price fixing? GE and other appliances were moving across retail counters at a rather slow pace under fair trade in New York and elsewhere and inventories were piling up. The sudden removal of rigged false price supports and the reestabilshment of a free competitive retail market by GE in appliances was quickly followed by similar abandonment of fair trade by competing manufacturers and distributors. This resulted in an immediate rush of buyers in New York and elsewhere who recognized values and who evidently were more than willing to buy under lower competitive price conditions. Consumers need no very persistent stimulation to purchase real bargains and, therefore, to buy. The public instantly recognized real values as quickly as fair trade was dumped and competitive markets restored.

One would imagine that after approximately 16 States declared the McGuire Act invalid and after manufacturers such as Sunbeam, Sheaffer Pen, General Electric, and countless others, ardent fair traders abandoned this form of price fixing, that those who believe in this type of trade restraint would make no more effort to revive this dead turkey. Unfortunately, however, they seem to need further proof that the simple law of supply and demand cannot very easily be repealed. Congress might just as well repeal all of our antitrust laws entirely as to enact into law the bill presently before you. Congress might also just as well enact a law that all motorcars, if the manufacturer desires to do so on such branded merchandise, must be sold at presently high nominal retail list prices. This would destroy price flexibility as evidenced by outright discounts from list where no trade-in is involved, or inflated trade-ins. Such a law would be as ineffective as it wiuld be to enact the utterly unenforcible provisions in H. R. 10527. When the McGuire Act was a bill before Congress, we said in testimony at the time that it was an effort to enact the economically and legally impossible and unenforcible and that it was very harmful to the public. As a result of what has transpired in the past 6 years it would seem that events have proven the McGuire Act to be just that; for the fair traders are now back again in the national legislative chambers, asking for a new and better gimmick to force fixed prices by direct Federal legislation. If they succeed in enacting this bill into law, it would seem to me that it will not work any better than previous Federal and State fair-trade efforts. The recently elected president of the United States Chamber of Commerce, a prominent St. Louis banker, said, shortly after his election, that the present recession would not be cured by legislative gimmicks, but in the market place where it started. Artificial interferences with free pricing and free markets such as this new Federal price-fixing bill now before you will in reality prolong the recession; not hasten its end.

A glance at 1 or 2 things that happened in the past 6 years since the McGuire Act will illustrate the futility of attempting by legislation, State or Federal, to interfere with powerful economic forces. Six years ago when Congress was considering the McGuire bill there were 2,000 discount houses in the country, 400 of them in New York City. The 400 in New York did an estimated annual volume of $500 million. The McGuire Act failed utterly in its effort to hold back the inevitable. For in the past 6 years discount houses have increased from 2,000 to 10,000 throughout the country, and in New York City alone from 400 to 2,000. I hold no brief whatever for any channel of distribution. All we ask is that the door be kept wide open on all levels of business without collusive restraint of trade and with a maximum of real competition. It is no secret, however, that the only economic justification for a discount house is in selling a ta substantial reduction from nominal list price. I suspect they will not disappear overnight, but are here to stay as long as they can perform an economic function which is acceptable to their cusomers. This bill outlaws, if a brand-name manufacturer desires it, price competition, but does nothing to restrain aggressive promotion competition. It would likely tend, if enacted, to shift price competition into the area of promotion competition. The effort to protect a higher cost or less efficient distributor would almost certainly be doomed to failure. Perhaps one of the biggest single economic problems facing the country is that of inflation. There is a race between cheaper currency and America's great productive capacity. It is not at all certain that inflation may not win this race. At a time when inflationary forces are evidently very strong, H. R. 10527, if enacted, would likely be extremely harmful to all consumers if it achieved its objective in any degree. For these laws never lower prices, but always tend to raise them above competitive levels. It is idle to pretend otherwise.

A few years ago groups representing grocers and the food trade generally appeared to be rather strong advocates of fair-trade laws. Now many seem to have lost interest in such price-fixing devices. The reason is evident. There are a considerable number of very good retailers' private brands. Manufacturers, too, in this as well as in other fields, faced with idle plant capacity, introduce additional premium brands, top brands, house brands, fighting brands in an effort to maximize earnings and function at capacity in order to appeal to different levels of income. Wherever buyers can escape from maintained prices they seem quickly to do so. Given some elasticity of demand and easy substitution of one food for another, not for long then can any food, or any other product, get too far out of line pricewise. Just as the McGuire Act was intended to reverse the Schwegmann case and to provide the compulsory nonsigner clause in fair trade, this bill is intended to reverse the highest courts of the States that

have invalidated the McGuire Act; also to introduce fair trade into the States that have heretofore rejected it, and to give us a Federal price-fixing law.

Before considering several important provisions of H. R. 10527, I should like to quote the first page of the article in the current, May 1958 issue of Consumer Reports, which appears on pages 239-240. The first is an excerpt from a minority report, 71st Congress, 1930, and is as follows:

"More and more we find business unwilling to compete or resorting to competition in nonessentials only. The spread between the cost of production and the price exacted from the consumer has more than doubled in the last 15 years. Much of the competition that remains consists in advertising and other distributive methods, from which the consumer derives little or no real benefit. *** This process cannot go on indefinitely. If businessmen will not compete voluntarily, legal means must be found to compel them to do so. Failing this, our system is marked for downfall."

The above statement was made in the minority report on the Capper-Kelly bill by Representative George Huddleston, Jr., of Alabama.

In the current article entitled "Are We Heading For a Federal Price-Fixing Law?" the first page of the 6-page discussion reads as follows:

"Shortly after the winter merchandise shows-at which manufacturers displayed their wares to buyers for the retail trade the General Electric Co. announced that it was, regretfully, abandoning the policy of retail price fixing. It didn't use those words; what GE said was that it would no longer enforce 'fair-trade' prices on its products. But the happening is both a complicated and an important one, and it is a good idea to get the words and meanings straight at the outset. 'Fair trade' is the term used by the proponents of price fixing. 'Monopoly price control' is the term most often used by its opponents. Price fixing or resale price maintenance, to use the technical term-is what it is.

"At store counters GE's action was immediately reflected in reductions on those particular products which had been price-fixed: Radios, vacuum cleaners, small electrics-like irons, toasters, and frying pans. (GE's larger appliancesrefrigerators, washing machines, ranges, dryers, etc.-had never been pricefixed).

"The products whose prices GE freed by its announcement were not, volumewise, important enough to have warranted the very high trade interest aroused by the action. In the market place, what GE accomplished was a break in the price dike through which some stocks flowed out of the swollen inventories of retailers, thereby releasing capital which had been tied up in an oversupply of slow-moving items.

"An ironic aspect of price fixing was illustrated by this circumstance. Before they could convert their investment in these goods into needed cash, retailers were dependent on the permission of a brand manufacturer for the right to make a business decision about an inventory they had already bought and paid for. It is ironic because propaganda on behalf of fair-trade price fixing invariably describes it not as a manufacturer's privilege, but rather as a protection measure for retailers.

"It was in the name of independent retailers that the Fair Trade Acts were lobbied through 45 of the 48 States during the 1930's. Then, national legislation was required to grant exemption from Federal antitrust laws to manufacturers availing themselves of the price-fixing privileges thus lobbied through; and so Congress was importuned, successfully, also in the name of the small retailer. But price-fixing laws recently have fallen on lean days. At this writing only 30 States have effective fair-trade acts; State courts have weakened or thrown out the laws in the other 15 States. Even more important, the Supreme Court of the United States recently ruled that a retailer in a non-fair-trade State could offer for sale (through mail-order catalogs) and ship into a fair-trade State branded products priced below legally price-fixed levels. Since a number of large discount houses in States where price fixing was illegal could thus compete with retailers in other States who were bound to maintain fixed prices, this decision was a serious blow to the price fixers.

"Hence, as GE put it in its letter to dealers announcing the abandonment of price fixing: 'Developments of the past months have forced us to the conclusion that an effective fair-trade enforcement program is no longer available in the marketing of the products of the housewares and radio receiver division of General Electric Co.'

"The letter went on to say, however, that GE was still of the opinion that fair-trade price fixing was a good thing and it advised dealers as follows: "To